Redfin’s latest New Construction Report tells us that the under building of new homes and respectively high construction costs of new homes continue to feed low housing inventories throughout the country.
The key…new housing starts remain at less than -22% over the long-term average. The causes…1.) the availability of construction workers remains at less than -25% of the 2006 or peak new home construction market and 2.) material costs (wood, concrete, tile, pipes, etc.) continue to rise with lumber leading the way to the highest price level on record since 2003.
Between July and September 2017, the average price of newly constructed homes was $374,000. according to Redfin’s quarterly analysis. Compared to existing home sales, newly constructed homes sold at an average premium of $87,000 in Q3, 2017. Newly constructed home prices increased by 3.3% year over year when compared to existing home prices. Existing home prices increased 7.9% year over year in Q3, 2017.
Despite these continuing low numbers of housing starts, the number of single family home building permits (the number of newly constructed homes currently in the pipeline to be built) has increased by +9.7% year over year through September, 2017. More than ¾ of nearly 100 metro areas have had positive growth in single family home permits during the first 8 months of 2017. On the other hand, new building permits for multi-family units, 5 or more units, has decreased by -3.6% for the year to date.
One important comparative data point in Redfin’s New Construction Report is that newly constructed homes are increasingly a growing share of the housing market within the last 5 years. In September 2012, 1 in 13 homes for sale were newly constructed homes. In September 2017, 1 in 8 homes for sale were newly constructed homes.
Nela Richardson, chief economist with Redfin, said. “After almost a decade of underproduction, we are finally seeing a slow, steady increase in single family home starts, up 19% from one year ago. But high building costs are limiting the construction of homes that today’s buyers can afford.”
Isaac Stocks of Azure Northwest Homes echoes Richardson. “We would love to build more affordable starter homes but when high end homes cost the same to build (as more affordable homes) and we are far more profitable, we lose the incentive to build smaller units.
Cities with the highest portion of new home sales during Q3, 2017 include Nashville, TN with 24%, Raleigh, NC with 23.2% and Austin, TX with 18.9%.
Metro areas with the lowest share of newly constructed homes sold include Buffalo, NY with just 0.8%, Camden, NJ with 1.5%, Hudson Valley, NY with 1.6% and Rochester, NY with 1.6%. Per 10,000 residents, Allentown, PA has 0.5 single family home building permits in the pipeline and Long Island, NY has 1.1 units in the pipeline.
Metro areas poised to build the most single family home units in the coming months are Houston, TX with 10,000 units, Dallas, TX with 9,4000 units, Phoenix, AZ with 7,800 units and Atlanta, GA with 7,700 units.
Areas with the largest year over year increases of building permits include Oakland, CA with an increase of +142%, Riverside/San Bernadino, CA with an increase of +96.2% and Tacoma, WA with a 76.9% increase.